Shares in IAG on Tuesday climbed to their highest level
since February 2007. QBE shares were on a trading halt, and have
fallen 37 percent since the first of three profit downgrades in
the past year.

The results show the high price QBE is paying for its
foreign expansion in terms of earnings stability, even if some
analysts expect it to pull ahead of domestic competitors like
IAG in the long-term.

"IAG operates in just the Australian and New Zealand
markets. QBE operates in global fragmented markets and made a
decade of acquisitions, some of which were badly timed, and it's
still trying to work its way out of that," said David Spotswood,
senior analyst at Shaw Stockbroking.

QBE has completed more than 75 acquisitions in the past 10
years to expand to 50 countries.

It is Australia's largest insurer by premium income and
generates almost three quarters of its premiums abroad. About 30
percent of its premium income came from North America, which was
lashed by severe storms in early June producing baseball-sized
hail and tornadoes.

In a bid to offload non-core assets, the company said it
would finalise the sale of its central and eastern European
operations and planned to sell part of its Australian and North
American underwriting agencies in the second half.

That includes sale of Underwriting Agencies of Australia,
which it bought in 2008, and two body corporate brokerages
acquired in 2004. QBE would retain the underwriting rights at
these businesses.

The sales are part of a raft of capital-raising measures
including a $750 million share placement and a share offering of
its lenders mortgage insurer business, which had $1.2 billion in
assets at the end of June..

"These initiatives deliver significant additional cash and
capital resources that will substantially improve the group's
financial flexibility and ability to better withstand a
reasonable range of downside scenarios," QBE said in a
statement.

QBE's insurance profit margin slipped to 7.6 percent in the
first half from 10.8 percent a year ago. It expects margins to
rise to 8 percent to 9 percent by the end of the financial year
- still well below IAG's 18.3 percent in 2013-14.

"It's the most credible position they've been in a couple of
years," Morningstar analyst David Ellis said of QBE.

"The market will not give them any more chances. If this
does not work out I can't see them recovering their credibility
and the blue chip rating for a conceivable number of years."

OUTLOOK UPBEAT

IAG, which specialises in motor and property insurance, gave
an upbeat outlook for gross written premium in the year to June
2015 - up 17 percent to 20 percent - helped by the acquisition
of Wesfarmers Ltd's insurance underwriting business.

IAG said its insurance margin was at the higher end of its
guidance as it announced full-year net profit of A$1.23 billion,
in line with forecasts.

Insurance margin is a measure of profit the company makes on
premium.

It announced a dividend of 26 cents per share, bringing the
full-year dividend to 39 cents, an increase of 8.3 percent from
a year ago.

With dividend yield of over 6 percent, IAG is among the
highest dividend paying insurers in the world, according to
Thomson Reuters Starmine. That compares with a global average of
2.9 percent.

IAG shares pared some early gains and at 0402 GMT they were
trading up 0.4 percent at A$6.29 each, in line with the
benchmark S&P/ASX 200 index. They are up more than 7
percent from the start of the year to Monday's close,
outperforming the 4.3 percent gain in the benchmark.

QBE shares were placed on trading halt due to the share
placement.
($1 = 1.0728 Australian dollar)
(Reporting by Swati Pandey; Editing by Stephen Coates)